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Increasing the Minimum Wage hurts those most vulnerable in our society.

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Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

Originally Posted by Cowboy

Bob the business owner loans out $5 and earns a return. The paying of that return is growth, economic development.

Simon takes the extra $5 he earned and puts it in his IRA which earns a return. Same thing.

I see no difference.

Ahh, that is a slightly different scenario than you put forward earlier I think. But a good question nonetheless.

So in this scenario, Bob is required under some law to pay out an additional $5 to Simon and Simon invests that in some investment (IRA, Savings, essentially the same investment Bob would use if he had kept the money). Thus the return on the money, from a more macro perspective is a wash in either situation, so you are correct that there is no difference as far as that part goes.

The economic difference would come here in the assumptions we’ve laid down to develop the scenario.

1) Bob has no profitable business investment (such as hiring a new worker) that he could engage in, which is somewhat unlikely.
2) Bob’s business is steady and will never grow (a very unlikely assumption, but the reduced net income reduces Bob’s ability to take out future loans that will allow for growth).
3) Simon has access to the same kinds of accounts Bob does (probably a pretty good one given our market).
4) Bob won’t just fire Simon given that law (as we’ve seen above Bob probably will, or at least with automate Simon’s job away at some point so the option isn’t Bob with $5, or Simon with $5, its Simon without a job).
And of course there is the moral question of whether it is right to take Bob’s rightful property and give it to Simon. But that is a bit outside this particular thread.

So as long as we accept those assumptions (and some others) we could call it neutral from a development standpoint. Personally, 2 is the biggest one to overcome. There are very real impacts to a company when you reduce net income. Loans become, by definition, more risky because small fluctuations in revenue could lead to defaults. That means company growth is reduced, future jobs aren’t created, future products are developed and overall economic growth is slowed.

Did the other parts of my response make sense though?

"Suffering lies not with inequality, but with dependence." -Voltaire

"Fallacies do not cease to be fallacies because they become fashions.” -G.K. Chesterton

Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

Originally Posted by Squatch347

So as long as we accept those assumptions (and some others) we could call it neutral from a development standpoint. Personally, 2 is the biggest one to overcome. There are very real impacts to a company when you reduce net income. Loans become, by definition, more risky because small fluctuations in revenue could lead to defaults. That means company growth is reduced, future jobs aren’t created, future products are developed and overall economic growth is slowed.

Actually, there is one cost you have not considered in your rebuttal. Efficiency cost. When Bob's money goes to Simon, its value depreciates because some labor had to have occurred to get that money from Bob's pocket to Simon's hand. Money does not travel for free.

The U.S. is currently enduring a zombie apocalypse. However, in a strange twist, the zombie's are starving.

Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

Originally Posted by Ibelsd

Actually, there is one cost you have not considered in your rebuttal. Efficiency cost. When Bob's money goes to Simon, its value depreciates because some labor had to have occurred to get that money from Bob's pocket to Simon's hand. Money does not travel for free.

Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

Originally Posted by CowboyX

What costs would those be and why wouldn't they be a wash?

Well at a very minimum we would have compliance costs, the cost associated with ensuring that the business is meeting the letter of the law that would be requiring him to pay the different wage.

What Ibelsd is referring to (I believe) is the actual transaction costs associated with the movement of the funds from Bob to Simon. These include a portion of the payroll system, additional taxes, other regulatory costs, etc. Essentially, all the additional costs associated with paying an employee rather than retaining an income.

"Suffering lies not with inequality, but with dependence." -Voltaire

"Fallacies do not cease to be fallacies because they become fashions.” -G.K. Chesterton

Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

Originally Posted by Squatch347

Well at a very minimum we would have compliance costs, the cost associated with ensuring that the business is meeting the letter of the law that would be requiring him to pay the different wage.

What Ibelsd is referring to (I believe) is the actual transaction costs associated with the movement of the funds from Bob to Simon. These include a portion of the payroll system, additional taxes, other regulatory costs, etc. Essentially, all the additional costs associated with paying an employee rather than retaining an income.

Ok, but Simon has those costs too so, again, it is a wash (those costs are also incurred when Bob pays himself or moves money for an investment) so we're back to a patriarchal argument.

Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

Originally Posted by CowboyX

Ok, but Simon has those costs too so, again, it is a wash (those costs are also incurred when Bob pays himself or moves money for an investment) so we're back to a patriarchal argument.

I'm not sure how Simon would have any of those costs. Simon doesn't bear the cost of the accounting system, or regulatory compliance here right? He doesn't pay payroll taxes or bear the burden of staffing an HR section right?

"Suffering lies not with inequality, but with dependence." -Voltaire

"Fallacies do not cease to be fallacies because they become fashions.” -G.K. Chesterton

Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

Originally Posted by Squatch347

I'm not sure how Simon would have any of those costs. Simon doesn't bear the cost of the accounting system, or regulatory compliance here right? He doesn't pay payroll taxes or bear the burden of staffing an HR section right?

He pays for a checking account, a guy to do his taxes to make sure he's in compliance with regulations, he most certainly pays payroll taxes and has to do all of the things on the other side of HR for himself...or hire an attorney.

Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

Originally Posted by CowboyX

What costs would those be and why wouldn't they be a wash?

Every time money changes hands, there is some sort of transaction cost, as Squatch alluded to:
So, if I have two consumers A and B and product X using current c.

Ac --> X A uses c to buy X and gains 100% value.
Ac --> Bc --> X A gives c to B who then buys X. The transfer of c from A to B incurs some sort of cost depending upon the system. At its simplest, I A hands B c, there is the simple requirement of time (which is labor). In the more complex system of something like taxes, then c is transferred from A to B through a mediator (the government) which entails an even greater use of resources. So when B spends c, it has less than the value it had when spent by A in the first example.

So, if c has lost value, then it is no longer as effective. B will not get as much out of c as A would have. You have wasted value in order to transfer wealth. Obviously, if B then has to give c to C, the value of c is diminished even more. The more c is transferred, then the more c it will take to purchase X. This will be true for both A and B and all other actors. So, you when you transfer wealth, you are not just separating A from his earned labor, you are hurting him in every transaction he makes.

The U.S. is currently enduring a zombie apocalypse. However, in a strange twist, the zombie's are starving.

Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

So there should never be any economic transactions?

Heck, Businessman Bob knows what his worker Simon needs. If he needs shoes, Bob will buy them for him and save the transaction cost.

While we're at it, let's cut out Bob as well, and have a local magistrate decide what Bob needs.

You know what, to do this most efficiently let's just have one man in charge of everything, let's call him "King". That streamlines everything.

You're making a "daddy knows best" argument and ignoring that Simon, also, operates under the same system and is subject to the same transaction costs...not to mention that those costs also bring about efficiencies of their own.

Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

Originally Posted by CowboyX

So there should never be any economic transactions?

Heck, Businessman Bob knows what his worker Simon needs. If he needs shoes, Bob will buy them for him and save the transaction cost.

While we're at it, let's cut out Bob as well, and have a local magistrate decide what Bob needs.

You know what, to do this most efficiently let's just have one man in charge of everything, let's call him "King". That streamlines everything.

You're making a "daddy knows best" argument and ignoring that Simon, also, operates under the same system and is subject to the same transaction costs...not to mention that those costs also bring about efficiencies of their own.

So, either you just do not understand economics or you are just so frustrated by having to deal with logic that all you can do is rant. In your little tirade, is there an actual argument? Do you disagree with the economic principles I am explaining? Am I somehow incorrect? Transactions have costs. Money does not go from point A to point B free of cost even though liberals like to pretend otherwise. I understand your entire ideology depends upon a suspension of reality, however, it does not mean that reality ceases to exist. What my argument is intended to explain is that if we are going to transfer money from person A to person B, then we need to except there is a cost associated with this. So, in your argument that Simon loaning Bob $5 is equivalent to Simon investing the $5 himself, your conclusion is incorrect because you do not take into account the value lost in the transfer of the money itself. Now, there are lots of reasons to loan money, but the interest rate is, in part, an acknowledgement of the value the money loses when it moves from one place to another.

The U.S. is currently enduring a zombie apocalypse. However, in a strange twist, the zombie's are starving.

Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

Originally Posted by CowboyX

So there should never be any economic transactions?

Ibelsd is correct here. Your conclusion is based, I think, on forgetting that there is another side to that transaction.

In normal economic transactions the cost (time+price+other costs) of the good or service is less than the value gained by the good or service obtained. Hence a net economic positive.

However, that isn't the case here. The owner receives no additional benefit from his transfer payment (since it isn't contingent on more or better work being done). Hence the additional cost associated with that payment is a net negative, unlike the net positive costs associated with mutually beneficial, voluntary exchange.

"Suffering lies not with inequality, but with dependence." -Voltaire

"Fallacies do not cease to be fallacies because they become fashions.” -G.K. Chesterton

Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

Originally Posted by Squatch347

Ibelsd is correct here. Your conclusion is based, I think, on forgetting that there is another side to that transaction.

In normal economic transactions the cost (time+price+other costs) of the good or service is less than the value gained by the good or service obtained. Hence a net economic positive.

However, that isn't the case here. The owner receives no additional benefit from his transfer payment (since it isn't contingent on more or better work being done). Hence the additional cost associated with that payment is a net negative, unlike the net positive costs associated with mutually beneficial, voluntary exchange.

Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

Originally Posted by CowboyX

True. How is that not different than what Ilelsd was talking about?

Because Ibelsd is referring to my last paragraph:

However, that isn't the case here. The owner receives no additional benefit from his transfer payment (since it isn't contingent on more or better work being done). Hence the additional cost associated with that payment is a net negative, unlike the net positive costs associated with mutually beneficial, voluntary exchange.

In the case where Bob is forced to pay a higher wage to Simon, there is an additional transfer cost, correct? That transfer cost is what Ibelsd is talking about.

Perhaps you could explain to me where you see the difference between what Ibelsd said and my last post? I just want to be sure I'm answering your question.

Completely unrelated to Cowboy's response, I did stumble across an interesting study a couple of days ago.

I just wanted to add it to the evidence list.

Just like there are some early indications that Seattle’s minimum wage law (currently at $11 an hour as it gets phased in over the next 16 months to $15 by January 1, 2017 for many businesses) is having an adverse effect on the area’s restaurant employment (see CD post here), there are also some “Troubling Signs of Minimum Wage Damage in Los Angeles” according to a new economic report from Moody’s Analytics.

The top chart above shows the recent significant divergence for California hotel jobs outside of the LA area (dark blue line) and accommodation employment within the LA area (light blue line). Over the last 12 months through June, hotel jobs in the LA area have fallen by 2,200 (and by 5%), while hotel jobs in the rest of the state have increased by 2,400 (and by 1.4%). Reason? A year ago, the Los Angeles City Council legislated a $15.37 an hour minimum wage for hotel workers that went into effect on July 1 for hotels with 300 or more rooms, and will go into effect next July for smaller hotels.

Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

Originally Posted by Squatch347

Because Ibelsd is referring to my last paragraph:

However, that isn't the case here. The owner receives no additional benefit from his transfer payment (since it isn't contingent on more or better work being done). Hence the additional cost associated with that payment is a net negative, unlike the net positive costs associated with mutually beneficial, voluntary exchange.

In the case where Bob is forced to pay a higher wage to Simon, there is an additional transfer cost, correct? That transfer cost is what Ibelsd is talking about.

Perhaps you could explain to me where you see the difference between what Ibelsd said and my last post? I just want to be sure I'm answering your question.

Like I said, Simon also faces a transfer cost, so its a wash. Bob would also face a transfer cost if he invested the money or took it as a salary. So the only way to avoid those costs would to have no movement at all.

A "mutually beneficial, voluntary exchange" assumes that both sides are equal and equally informed. What if Simon feels he is working for less than he deserves? That is a net negative for Simon, no?

Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

Originally Posted by CowboyX

Like I said, Simon also faces a transfer cost, so its a wash.

Where? What transfer cost is Simon undertaking in the scenario that you offered that balances Bob's?

Bob---> Simon--->Investment

Bob--->Investment

Originally Posted by Cowboy

A "mutually beneficial, voluntary exchange" assumes that both sides are equal and equally informed. What if Simon feels he is working for less than he deserves? That is a net negative for Simon, no?

I'm not sure why that would assume equality or information symmetry.

All mutually beneficial, voluntary exchange requires is that it was:

a) voluntary.

If it isn't mutually beneficial, one or both of the parties would have rejected the deal right?

Simon almost certainly feels that his labor is worth more than Bob is paying for it. Bob almost certainly feels that Simon's labor is worth less than Bob is paying for it. Both parties would love to change the terms of the deal in their favor. But the key is, it is irrelevant. The only thing that matters is whether or not both parties feel that the current deal makes them better off.

And we know that they think it does because they were willing to engage in it right?

If Simon really felt he was net worse off for his labor, why did he take the job? Wouldn't he have been better off to be unemployed?

"Suffering lies not with inequality, but with dependence." -Voltaire

"Fallacies do not cease to be fallacies because they become fashions.” -G.K. Chesterton

Simon almost certainly feels that his labor is worth more than Bob is paying for it. Bob almost certainly feels that Simon's labor is worth less than Bob is paying for it. Both parties would love to change the terms of the deal in their favor. But the key is, it is irrelevant. The only thing that matters is whether or not both parties feel that the current deal makes them better off.

And we know that they think it does because they were willing to engage in it right?

If Simon really felt he was net worse off for his labor, why did he take the job? Wouldn't he have been better off to be unemployed?

Right, but that isn't the question. The problem here is the net negative that Bob feels he has.

Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

Originally Posted by CowboyX

Oh no, that's not what I was talking about. I was talking about the transfer costs between Bob and Simon...both have them so it is a wash.

Bob--->(transfer costs incurred by both Bob and Simon)--->Simon

Bob will face transfer costs wherever he wants his money to go, also.

Ah, I misunderstood. Well setting aside that Simon doesn't really directly bear the transfer cost (generally your employer is the one who pays for the payroll system and all of that), I'm not sure how this makes the two scenarios a wash.

In the first, Bob (or we could say both Bob and Simon if you prefer) incur a transfer cost when Bob gives the money to Simon. Then Simon incurs another transfer cost to invest it right?

But in the second, only Bob incurs a transfer cost by transferring the money to an investment, correct?

That would seem to make the second scenario more cost efficient, and therefore more productive, which I believe was Ibelsd's point.

Originally Posted by Cowboy

Right, so why wouldn't that be a net negative for Simon?

I'm not sure I fully understand your response. Why wouldn't what be a net negative for Simon?

My comment was meant to show that any voluntary exchange is mutually beneficial because if it was net negative for one party, they would simply reject the deal.

Originally Posted by Cowboy

Right, but that isn't the question. The problem here is the net negative that Bob feels he has.

What net negative are you talking about? Do you mean when we force Bob to pay the additional wage?

In a voluntary exchange system (which is more or less what we are talking about) Bob simply says no to the deal, just as Simon would if the wage were too low. The deal has to be beneficial to both parties in order to occur.

"Suffering lies not with inequality, but with dependence." -Voltaire

"Fallacies do not cease to be fallacies because they become fashions.” -G.K. Chesterton

Re: Increasing the Minimum Wage hurts those most vulnerable in our society.

Originally Posted by Squatch347

Ah, I misunderstood. Well setting aside that Simon doesn't really directly bear the transfer cost (generally your employer is the one who pays for the payroll system and all of that), I'm not sure how this makes the two scenarios a wash.

In the first, Bob (or we could say both Bob and Simon if you prefer) incur a transfer cost when Bob gives the money to Simon. Then Simon incurs another transfer cost to invest it right?

But in the second, only Bob incurs a transfer cost by transferring the money to an investment, correct?

That would seem to make the second scenario more cost efficient, and therefore more productive, which I believe was Ibelsd's point.

What type of payroll system Bob employs is irrelevant, he could just write Simon a check. Simon also pays for a checking account so it is a wash.

What net negative are you talking about? Do you mean when we force Bob to pay the additional wage?

In a voluntary exchange system (which is more or less what we are talking about) Bob simply says no to the deal, just as Simon would if the wage were too low. The deal has to be beneficial to both parties in order to occur.

I suppose, you brought it up. I'm not sure I understand how it is a net negative or even what that is. How is it different, or better or worse, than when the market forces him to pay more?

I suppose, you brought it up. I'm not sure I understand how it is a net negative or even what that is. How is it different, or better or worse, than when the market forces him to pay more?

Maybe I do not understand your argument, but there seems to be a disconnect between value and compensation.

If Simon's job, based on market value is X and Bob is compelled to pay Simon X + n, then there is a loss in value for Simon. He is paying more than he would have. This is a form of market inefficiency. Whatever n is, this is money which is not being used efficiently. The value n could be used to help pay for another employee or new machinery. Now, I think your argument is Bob will use n just as efficiently as Bob would have, meaning the transaction, on a macro scale, is a wash. Obviously, on the micro level, Bob loses. Hopefully, that is obvious and needn't be defended. So, per your argument, Simon has extra money in his pocket and will unleash it into the economy making everyone just as prosperous as if Bob had spent it.

There are two problems with this view.
1) Since Bob overpaid for a service, he didn't receive value for his money. That money, n, is worth less than before it changed hands because the very virtue of overpaying for a service or product is akin to devaluing currency. We call this inflation. Bob is not getting more value, but he is paying more.

2) When the money changed hands from Bob to Simon it lost value in the transaction. Rather than the money, n, going from Bob to some company to pay for a new tool, it will go from Bob to Simon to some product. This extra transaction in the currency chain has a price. So, again, n is not worth as much in Simon's hands as it was in Bob's hands. We expect some cost in every transaction we make. It could be a lender's fee or something more subtle, such as a few extra pennies to pay the clerk who rings up your order. Even handing a check from Bob's hand to Simon's hand incurs some sort of cost.

So, when we increase the minimum wage to some arbitrary number, we run the risk of forcing inflation by both devaluing the currency and increasing costs without any tie to value received. A wash only occurs when Bob pays Simon exactly what he's worth. The more politicians try and and tinker with this delicate balance the more likely they are to create unintended consequences that negatively impact both Bob and Simon. Squatch showed a chart earlier which demonstrated how minimum wage laws have negatively impacted the job market. So, in the short run Simon gets some extra money. In the long run, he may lose his job or experience difficulty in finding a new job.

As F.A. Hayek put it:"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."

The U.S. is currently enduring a zombie apocalypse. However, in a strange twist, the zombie's are starving.

If Simon's job, based on market value is X and Bob is compelled to pay Simon X + n, then there is a loss in value for Simon.

Just to clarify, I think you meant "loss in value for Bob."

But to your larger point what you really could have said is, "loss in value for all of us" because the money is going to a non-optimal use. Or in geek language, the capital is not being employed along the efficient frontier.

Originally Posted by Ibelsd

He is paying more than he would have. This is a form of market inefficiency. Whatever n is, this is money which is not being used efficiently. The value n could be used to help pay for another employee or new machinery.

Exactly, Cowboy, this is opportunity cost, which is a powerful concept in economics and very relevant to this discussion. By removing capital from more efficient uses to pay for additional wages that aren't producing value, we are losing what that capital would have produced otherwise, which would have benefited Simon's life.

Originally Posted by Ibelsd

It could be a lender's fee or something more subtle, such as a few extra pennies to pay the clerk who rings up your order. Even handing a check from Bob's hand to Simon's hand incurs some sort of cost.

Like the time value of money, which I think you brought up earlier.

"Suffering lies not with inequality, but with dependence." -Voltaire

"Fallacies do not cease to be fallacies because they become fashions.” -G.K. Chesterton